Blueprint: PERE’s Deep Dive on sector-specific funds, Apollo’s debut European debt fund, ESR’s sale of ARA Private Funds

PERE's March cover story zeroes in on why specialist funds are likely to have more luck attracting capital than their diversified counterparts this year; Apollo targets $1.09bn for its first European real estate debt fund in an increasingly crowded market for large property lending vehicles; ESR sells ARA Private Funds as part of its $750 million divestment plan; and more in today's briefing, exclusively for our valued subscribers.

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They said it

“Instead of paying the distribution costs of the banks, and paying the ratings agencies, the borrowers can keep all of the spread” 

Jon Gray, Blackstone’s president and chief operating officer, speaking about the advantages of making real estate and other hard assets loans at PEI Group’s inaugural NEXUS conference in Orlando, Florida

What’s new

PERE March 2024 cover story

A ‘very good story’ for specialists

Capital raised for private real estate investment in 2023 was the lowest annual total in 11 years, per PERE data. With investors’ allocation capacity constrained by limited capital distributions, the denominator effect on their portfolios and concerns over real estate’s performance, today’s fundraising environment is the most competitive in over a decade. Although the biggest funds in the space continue to get bigger, there is evidence sector-specific funds could have an easier time attracting capital this year relative to a large swath of their diversified counterparts. “I think there’s a very good story for the specialists in the current market,” says James Jacobs, head of real assets advisory at Lazard. PERE’s latest cover story takes a dive deep into current fundraising trends and preferences to explore the growing attraction of a singular investment focus among investors.

Apollo looks to take credit

There is no shortage of managers with big aspirations in the European real estate lending space. At least seven firms are in market with European real estate debt funds targeting $1 billion or larger, according to PERE data. The largest of these is Cheyne Capital Management’s Cheyne Real Estate Credit Capital Solutions, which has a $3.16 billion target and has amassed $822.5 million to date, PERE data shows. Now Apollo Global Management has thrown its hat into the ring, targeting €1 billion for its debut European real estate debt fund. The vehicle would be the fifth-largest in market focused on the regional strategy, after Intermediate Capital Group’s ICG Real Estate Senior Debt V and abrdn’s Commercial Real Estate Debt Fund II, both of which are seeking $1.27 billion in commitments. But while Apollo faces stiff competition, one key advantage is the New York-based alternative asset manager’s reputation as a credit powerhouse – the strategy accounts for about $500 billion of its $650 billion in assets under management. For more on Apollo’s new fund, read the full story here.

ESR’s long-anticipated divestment

Asia-Pacific industrial heavyweight ESR Group is selling ARA Private Funds for $270 million as part of its $750 million divestment plan of non-core businesses to focus on new economy sectors, according to a statement. The sale of APF is primarily composed of closed-end funds in traditional real estate sectors such as office, retail, and hospitality in Australia, Singapore, South Korea and the US. The buyers were identified as “entities which include an affiliate of Sumitomo Mitsui Finance and Leasing.” ARA’s chief executive officer Moses Song will leave ESR to lead ARAvest, the new holding company of APF. The transaction comes more than two years after ESR bought ARA Asset Management for $5.2 billion. Since then, the former has been actively integrating the latter’s industrial business platform LOGOS Property Group into the company. Look out for further analysis on the APF sale in the coming days.

Time to harvest

Blackstone’s full exit from India’s Embassy REIT has demonstrated the manager’s success in helping to develop the country’s real estate capital markets, the firm’s senior executives said in an exclusive interview with PERE. The firm is understood to have realized a 3x to 3.5x return by selling its remaining 23.6 percent stake in the REIT through a $850 million block sale.

Domestic investors’ participation in the REIT had increased significantly from 30 percent in 2019 to 59 percent in 2023, with support from three Indian mutual funds: ICICI Prudential MF, SBI Mutual Fund and HDFC MF. Having pioneered the country’s REIT market in 2019 with the IPO of Embassy REIT, Blackstone has since backed three of the four REITs in India. Tuhin Parikh, senior managing director and head of India real estate at Blackstone, said the increased representation of local capital gives the market liquidity and allows international investors to grow more “comfortably” in the market.

Trending topics

SEC waters down climate regulations 

The US Securities and Exchange Commission revealed its much-anticipated climate regulations last week, with the scaled-back demands having major ramifications for real estate. The rules will require large corporations to report their Scope 1 and 2 emissions in the first instance, but crucially do not extend to Scope 3 emissions – which refers to emissions generated within a company’s supply chain. Leaving them out means real estate owners will not be responsible for monitoring, measuring and disclosing the activities of their tenants. The draft climate regulations were released two years ago and included Scope 3, but some politicians and members of the business community had railed against those plans. Even though Scope 3 was dropped, firms are still required to disclose climate-related risks that will affect their business. Right now, less than 50 percent of US real estate companies disclose Scope 1 and Scope 2 emissions, per MSCI data.

BGO goes all in on SFR

New York-based BGO is expanding into US single-family rental, taking an ownership stake in a new company and committing to spend half a billion dollars on the asset class across the country. The firm announced last week it had reached a deal to acquire a 25 percent ownership stake in the single family rental business of 1Sharpe Capital, an Oakland-based manager and operator. BGO and 1Sharpe will exclusively go after purpose-built, connected single-family home communities. The partnership’s first acquisition is a newly-built, 64-home community located in Phoenix. BGO has been looking at the sector for at least three years, with Chris Niehaus, a managing partner at BGO, telling PERE it provides good cashflow and a lot of downside protection. “The affordability index of renting versus owning is the lowest it’s been this century. This is caused by high-interest rates, high housing prices, new home supply shortages,” he said. “So it creates a very interesting investment opportunity where those who would like to have a home cannot afford it, but they will want to rent it.”

MIPIM mood-check

The 2024 edition of MIPIM, one the world’s largest gatherings of property professionals, is underway in Cannes. Regular attendees will be reminiscing about the conversations that dominated last year’s event, which took place just days after the collapse of two US banks sent financial markets into a panic, and during which the share price of Credit Suisse took a tumble – preceding its subsequent takeover by UBS. One year on and interest rates have since risen another 75 basis points in the US and 150 bps in the eurozone, keeping transaction activity largely on ice. But with rates having stabilized for at least the past six months, will 2024 see the return of the traditional post-MIPIM surge in activity?

Journalists from PEI Group’s real estate cohort – representing PERE, Real Estate Capital USA and Real Estate Capital Europe – are on La Croisette to find out. Among the myriad investors, managers and lenders we are meeting are Blackstone, Swiss Life AM, AXA IM Alts, Generali Real Estate, Oxford Properties, Greystar, CBRE IM, pbb invest, Nuveen, Aareal Bank, Schroders Capital and PGIM Real Estate – to name a few. Keep an eye out for our coverage in the coming days.

Data snapshot

M&A size on the rise 

The annual target real estate AUM increased notably from $162 billion in 2022 to $331 billion in 2023, according to Hodes Weill’s 2023 M&A Market Review. Some of the largest M&A transactions involved alternative asset managers expanding into the real estate sector via acquisitions including HSBC Asset Management’s purchase of Singapore-headquartered real estate investment firm SilkRoad Property Partners.

People

ActivumSG to branch out with Lemer hire

ActivumSG, the pan-European-focused private equity real estate firm, has appointed Eric Lemer in a newly expanded role to drive its fundraising and investor management activities, PERE revealed on Friday. Lemer, who joined at the start of the month, is responsible for leading the firm’s investor relations, fundraising, co-investment and business development functions. He assumes an expanded role vacated by Annemarie Manning, previously the firm’s head of investor relations and product development, who left in November. Lemer, who previously held senior roles at managers EQT Exeter and Delancey, capital advisory firm Hodes Weill & Associates and investment bank Credit Suisse, joins as the firm has approximately €250 million in dry powder remaining in Activum Fund VII, the latest vehicle in its flagship fund series.

Investor watch

UniSuper sizes up in logistics

UniSuper, the Australian superannuation fund, has made another sizable bet on the country’s industrial property market. The investor has teamed up with Australian superannuation fund-sponsored property firm ISPT for a 50:50 joint venture to acquire a 686-acre development site close to Western Sydney International Airport, as per a statement. Called Burra Park, the development is expected to generate more than 4 million square feet of lettable space over the next seven years with an end value of more than A$3.9 billion ($2.57 billion; €2.36 billion). The outlay was the second significant investment in domestic logistics by Uni Super in quick succession after it paid A$260 million for a development site in Melbourne last month. That site is expected to have a completion value of more than A$1 billion, according to a report by Reuters, adding to UniSuper’s current portfolio which is valued at about A$8 billion currently.

This week’s investor meetings

Tuesday, March 12

Wednesday, March 13

Thursday, March 14

Friday, March 15

Today’s letter was prepared by Miriam Hall, with Jonathan Brasse, Evelyn Lee, Charlotte D’Souza and Christie Ou contributing.